Do You Have This TRUMP Card?
Umang is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A company when purchased during its nascent stage will give the highest possible returns. This was one of the key reasons for the huge success that Warren Buffett had achieved as a stock investor. An eye for details helps you in picking a company which can possibly give you huge returns in the near future. Velti's stock is one such trump card which could possibly offer a good return in the coming future. Velti (NASDAQ: VELT) is one of the leading global providers of mobile marketing and advertising technology and solutions. But before you dive into any conclusion on the stock, let’s take a sneak-peak into the SWOT (Strength Weakness Opportunities Threats) Analysis of the company.
It offers a Complete Suite. Velti's mGage is an integrated mobile marketing platform addressing all aspects of the mobile marketing and advertising lifecycle. Velti's Application is quite distinctive. Their business model is based on driving users through an effective ad campaign rather than just hoping that the user will click on an ad displayed on a Smartphone as in the case of its competitors like Facebook (NASDAQ: FB) and Google (NASDAQ: GOOG).
Velti closed its largest ever deal with a major US brand for $27 million. This is driven primarily by their Engagement Program. According to eMarketer, 57% of consumers said they would stick with a brand because of its loyalty program. Velti targets this market, connecting brands to interested customers by allowing the brand to develop valuable relationships through the creation of loyalty, retention and advocacy with customers from a multi-channel perspective, with the mobile channel taking the lead.
They deal in a very fragmented market. They have a strong presence in China, India, Brazil and Europe along with The United States as compared to its competitors who are primarily concentrated towards the United States like Augmen Technologies. One of the best moves was to have an early entrance advantage in the growing Chinese and Indian market as compared to its peers clearly giving it an upper edge. Other distinctive advantage Velti has is that they have 5 established patents and 21 pending patents to protect their algorithms and technology platforms.
Vellti moved quite tactically in acquiring different companies while maintaining a very low turnover rate (except Mobclix) in these acquisitions. Let’s take a look into some of its acquisitions:
1) CASEE, the largest mobile advertising exchange in China, giving them an advantage in the fast growing Chinese market.
2) Ad Infuse, a provider of personalized mobile advertising in the U.S, broadening their prospects in the U.S. market with an enhanced product offering.
3) Mobclix, the leading exchange for ad inventory on mobile applications, helping them expand their database which in turn will help them provide better offerings to their clients.
One of the famous management terms is Conflict of Interest. This is quite applicable for Velti's management. The management is quite weak and a lot of complaints have been raised. Clearly there is a clash of interest between management and investors which is causing these internal conflicts.
One of their biggest weaknesses is a very high DSO cycle. DSO (Days Sales Outstanding) is a measure of the average number of days that a company takes to collect revenue, after a sale has been made. Currently it is as high as 266 days. This has been a major concern for them in the recent past. They also have a very high third party cost. As their business continues to grow, the third party cost is also increasing at an almost equal rate, which is the main cause of concern for top management.
One of the biggest opportunities for all the technology companies is the burgeoning mobile space. The mobile business is growing rapidly, triggered by Smartphones and Tablets, which in turn will help Velti to continue growing for the next few years.
As mentioned earlier their biggest concern is a high DSO cycle. Thus a great opportunity lies ahead if they could restructure their collection system. This will help them in reducing their DSO cycle. They have already reduced it by a relatively good percentage over the last quarter.
One of the biggest threats they possess is a tough and giant competitor – Google. Google is getting stronger day by day on the mobile platform. They recently launched the interactive video mobile ads. They are generating huge revenue from display ads. They will possibly takeover Facebook, with a market share of around 15.4% by the end of the year 2012 (as per EMarketer). The report also depicts that they will have the highest growth rate in the next two years.
Another player who is becoming stronger day by day in this field is Facebook. Facebook is slowly and steadily streamlining its revenue model for its mobile application. They generated revenue of $150 million through mobile ads. This triggered a surge in its share price by as high as 20% within a day’s time. If Facebook continues to improve on the mobile ad frontier, they could attract many clients away from Velti because of its humongous database.
One of the biggest concerns for Velti is the attrition rate of the developers of Mobclix. Velti has been unable to meet its Mobclix payment contract terms of 90 days which has triggered a lot of developers to move away from Velti. If Velti is unable to reduce its collection time for accounts receivables then the developers of Mobclix might flee away to its competitors.
Recently a patent lawsuit was filed by Augme technologies, one of its leading competitors, for infringing on a couple of its patents. These lawsuits if ruled against them then it might cost them heavily. In the last quarterly report, Velti did file this as one of the risk associated with the firm.
Velti is doing well in several frontiers and has the potential to grow further because of the fast growing mobile space. If they continue to improve on their weaknesses and lash on to the upcoming market opportunities then we are expecting a good growth curve.
Umang27 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.